Before a small business can legally begin, it must comply with federal environmental
regulations as well as get the required tax and securities registrations and, in
some cases, business licenses. None of these requirements are difficult or even
terribly time-consuming. But finding out what you need to do can be like putting
together a jigsaw puzzle without knowing what it should look like.
Below, we set out a general outline of these requirements at the federal level.
Tax Registrations
You should know about two kinds of federal tax registrations.
Employer Identification Number.
The first is the Application for an
Employer Identification Number (EIN), Form SS-4, which is available free at
www.irs.gov . All corporations, limited
liability companies (LLCs), and partnerships, as well as sole proprietors who
will hire employees, must apply for EINs.
Although using an EIN is a good way to keep your business and personal affairs
separate, the IRS doesn't like to give an EIN to a sole proprietor without
employees. In that case, you will probably use your own Social Security number
rather than a separate EIN.
S Corporation Tax Form.
Second, if your business is a
corporation
and you want to elect status as an S corporation (for special tax treatment),
you need to file Form 2553, Election by a Small Business Corporation, also
available at www.irs.gov .
Licenses for Regulated Businesses
You're not likely to need a federal license or permit unless your business
activity or product is supervised by a federal agency, such as:
• public transportation and trucking (the Motor Carrier Safety Administration)
• investment advice (the Securities and Exchange Commission)
• preparation of meat products or production of drugs (the Food and Drug
Administration), or
• tobacco products, alcohol, and firearms (the Bureau of Alcohol, Tobacco and
Firearms in the U.S. Treasury Department).
Environmental Regulations
It's possible that you'll become involved with environmental regulations at the
federal level (overseen by the Environmental Protection Agency, or EPA). For
example, you may buy a piece of contaminated industrial property that needs
cleaning up, or you may need a license to dispose of toxic by-products from your
manufacturing process. For more information, go to the EPA's Small Business
Gateway at www.epa.gov/smallbusiness.
Securities Registration
If you're starting out your business as a corporation, a limited liability
company, or a limited partnership, and you'll be sharing ownership with people
who will not be actively working in the business, you may need to comply with
federal (as well as state) securities laws.
Fortunately, many small corporations get to skip the registration process
because of securities "exemptions." For example, SEC rules don't require a
corporation to register a "private offering," which is a non-advertised sale of
stock to either:
• a limited number of people (generally 35 or fewer), or
• those who, because of their net worth or income earning capacity, can
reasonably be expected to take care of themselves in the investment process
(often called "accredited investors").